India@70:Why family offices need to chip in to India's startup ecosystem

There has been an increasing clamour for more rupee capital to be deployed in the country, to not only potentially wean away ventures from their dependence on overseas money.Biswarup Gooptu | ET Bureau | Updated: August 16, 2017, 09:32 IST

Burman Family Holdings, the proprietary investment arm of the promoters of the Rs 53,000 crore retail conglomerate Dabur India, was last month said to be stitching together a syndicate that will identify and make growth stage investments across sectors.

The development, first reported by ET on July 13, is the latest example of an Indian family office looking to deploy not just its own capital but also that of an investor consortium in the country’s startup ecosystem, which has been largely dependent on foreign pools of capital for its financial sustenance.

Family offices in India, over the past decade, have emerged as one of the safer, strategic alternatives to conventional risk capital, not only for their long-term investment approach, but also for the brand recognition and access they bring, attributes seen as critical, particularly by the startup ecosystem.

However, Indian family offices that have invested in the country’s new economy ventures continue to be limited in number, compared to the west, particularly in the US, Europe, and China.

“I don’t see that depth of capital here yet. It would be nice if that could happen. You have some industrial houses that are looking at the startup ecosystem now, but that’s more about corporates trying to see how they can fast-track innovation,” said Ronnie Screwvala, founder of Unilazer Ventures.

There has been an increasing clamour for more rupee capital to be deployed in the country, to not only potentially wean away ventures from their dependence on overseas money, but also deepen the overall pool of capital available to them. However, most large Indian, promoter-driven corporate houses have traditionally continued to park their personal wealth in more conventional asset classes, such as real estate.

“For family offices, they have the same challenges as large pools of money, in the sense that they are trying to follow a very distinct asset-allocation framework, which in turn puts pressure on them to identify benchmarks, track records and relative performance data,” pointed out Rahul Khanna, managing partner of venture debt firm Trifecta Capital.

Trifecta Capital counts at least three prominent Indian business families--Eicher Motors, Havells India and the Patni family--amongst its list of LPs for its maiden fund, fast approaching final close.

For some, greater regulatory support would serve as a catalyst for increased participation.

“It’s ironic that foreign private equity has no capital gains tax, but Indian PE does. That is a serious deterrence,” Screwvala said.

Under the current indirect transfer of shares regulations, leeway has been provided to most foreign portfolio investors. However, this is available to only certain categories of investors. It doesn’t include family offices that fall under Category 3, which is not exempted.